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"Hundreds should go to jail," wrote Motley Fool co-founder Tom Gardner earlier this year, referring to the culprits behind our financial meltdown. And while jail might not be in the cards just yet, we're finally on the right track.

The SEC has filed a civil fraud suit against former Countrywide CEO and international tanning sensation Angelo Mozilo, as well as two other former executives. Insider trading charges may also be on the table for Mozilo. Countrywide, you'll remember, sold itself to Bank of America (NYSE: BAC) early last year.

The suit basically claims that from 2005-2007, Countrywide underwrote mortgages to anyone with a heartbeat and smile, while leading investors to believe it was a conservative lender. This might seem rather subjective at first, but the SEC backed its case with some fairly evident confessions, including an internal email sent by Mozilo regarding so-called 80/20 loans, which let subprime borrowers take out two mortgages on the same house. The message states:

In all my years in the business I have never seen a more toxic [product.] It's not only subordinated to the first [mortgage], but the first [mortgage] is subprime. In addition, the FICOs are below 600, below 500 and some below 400[.] With real estate values coming down ... the product will become increasingly worse.

Good luck defending that one.

In response to realizing how shoddy its lending practices were, Countrywide's enterprise risk assessment officer sent a memo to Mozilo, stating in part:

"Borrower repayment capacity was not adequately assessed by the bank during the underwriting process ..."

"Debt-to-income (DTI) ratios did not consider the impact of principal [negative] amortization or an increase in interest."

Translation: "Not only are we loaning money to people who probably can't pay us back, but what scant math we use to assess their credit worthiness is completely flawed."

In short, it's abundantly clear to me that Mozilo and other senior executives knew their business was about to blow up. Yet they essentially did nothing about it. More importantly -- and here's where the fraud allegation comes in -- they didn't disclose the information to shareholders.

OK, actually, they did do something about it. Knowing the game was up, Mozilo allegedly sold $140 million worth of stock during this period. This could constitute insider trading, because the emails and memos show that he knew material information about the company's deterioration that wasn't revealed to shareholders. Go on. Take the money and run.

What's this all mean for the industry? With any luck, the suit against Mozilo will spark a broader trend of holding CEOs accountable. Can the SEC find similar cases of criminality at Washington Mutual? Wachovia (now part of Wells Fargo (NYSE: WFC) )? Bear Stearns (now part of JPMorgan Chase (NYSE: JPM) )? Lehman Brothers? AIG (NYSE: AIG) ? Merrill Lynch? Fannie? Freddie? While I don't know of any evidence, I wouldn't be shocked.

Stupidity isn't a crime. Concealing your stupidity when you have a duty to your shareholders is. And anyone who did so should pay for it.

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Countrywide was an awful business. I figured it out after these guys gave me a loan for my house. I did a little piggyback type loan and the main portion of the mortgage was a straight-forward fixed rate and the 15% "downpayment" portion was a ARM. Reading the ARM portion made my head hurt-far from straight forward. I figured out that it had some strange reset conditions and other oddities. I am pretty savy and I missed some of the clauses in that loan, what the heck were less savy people getting? I started shorting the stock and almost paid off my ARM with my proceeds.

That said BoA has come back to me asking if we clean-up the ARM loan into something more straight forward. I know BoA isn't in the greatest shape, but they are attempting to clean out some of the Countrywide mess.

What I remember about Countrywide when I sold real estate in the mid to later 90's is the loan officer was also the underwriter. So most loans had no problem getting approved. But there not the only criminal in this whole mess. There is plenty of blame to go around. And to be honest, you really don't want to get me started because all fingers can lead back to one spot. I think everyone should really reflect and look back. You are all smart enogh to figure it out.

It's about time. I hope more of the responsible parties are prosecuted. I've been waiting for these lenders to pay for making bad loans and selling them as low-risk securities, then bailing before investors realized they were screwed. Why not seize the assets of these criminals and use that money to pay back the investors they ripped off? I know it's just the tip of the iceberg, but seeing that kind of justice would do a lot to improve MY confidence in the market.

Complete BS on every count that I read. I used to be a phone-monkey at CHL, handling Tax/Escrow.

We knew full well that 80/20's, ARMs and Balloons were going to kill us, but Mozilo wasn't given a choice by the Board, who threatened to tell the shareholders that Mozilo was interfering with profitability by hampering sales of income-raking products -- the shareholders were generally too stupid to know the difference, so Mozilo could count on being voted out at the next meeting if he said "Stop!" He didn't want to see the company he spent 40 years building crash and burn around his ears, so he broke internal rules to shovel cash in circles offshore for when the crunch came.

A common misconception is that CHL //wrote// most of its own portfolio - it didn't. Roughly 60% of the portfolio were loans written by the Mom-n-Pop financier in the strip center. They wrote the loans and floated them for c.90 days, until they could sell it off to a major lender like CHL or Wells Fargo. Those lenders all had investors who would chip in for a cut on the interest collected over time.

The breakdown occurred in that there was very little control in the industry at that time - and likely, still - in checking the FICO of the 3rd party borrower -- the polite assumption was that if they qualified for the loan in the first place, there was little reason to not buy/service the loan, unless the borrower was a perpetual dodge.

When it became painfully obvious that the system was crashing, Mozilo reeled in the markers that he had parked overseas, consolidated CHLs finances by recapitalizing Countrywide Bank and closed c.40% of CHL storefronts, IOT stave off disaster long enough for the sale to BofA to go through.

As for the stock sales, that was part of a deal dating to 2001, where his retirement was tied into the company's stock: he would sell off a large chunk of his stock over a 3 year period prior to his planned retirement date (12/2009). That used to be a fairly common practice - you remember, in the days before CEOs got contractual signings that promised 100's of millions in bonuses whether they performed well or ran the company into the dirt.

The SEC wants to make nice with CONgress, so they are going to throw Mozilo to the wolves, along with a few other "fat cats", instead of the arsh0les who started all this crap, namely the arsh0les currently in charge of CONgress and the idiot-savant shareholders.

So yeah - you should feel sorry for Mozilo, because he'll take the heat so that the ars-hats posting on d1psh1t websites with delusions of adequacy can have one more day where they don't have to shake a soup can for spare change or rob a liquor store with a bat to steal a loaf of bread and a gallon of milk.

DorsaiLeader2: Just because you were at phone-monkey at CHL does not mean that you have the entire picture.

It's clear why there was "little control in the industry" regarding qualifying buyers. A few years into the real estate boom, the industry had run out of qualified buyers (RE was too da3m expensive). What, no more phat loans to sell? The gray train had to stop? What were they going to do? So banks started qualifying anyone and everyone for a mortgage. It was no problem for the banks, as long as they could sell the loans and pocket the cash. Eventually opportunists at brokerage firms would regroup/repackage the loans, then splice them into securities and sell them to suckers who had 401Ks with them... Those were glory days; everyone made money except the guys at the bottom of the pyramid---and who cares about them anyway?

Yes, the government (including the SEC and Congress) enabled these crimes, but they didn't COMMIT them. Greedy and crooked bankers and brokerages committed these crimes and should be held accountable---we should seize their assets to pay restitution and put the responsible individuals behind bars for the rest of their lives.

And while the Justice Department takes care of the crooks, Obama and company need to pass some regulations with more TEETH in them.

I wouldn't be so fast to let Franklin Raines off the hook. And Congress did way more than merely "enable" these "crimes." Barney Frank stonewalled legislation that would have prevented much of the laxed mortgage processing. Bill Clinton is on record stating that the democrats bear much of the responsibility for their "resistance by conservatives in the congress and himself to put some standards and tighten up on Fannie Mae and Freddie Mac." See his ABC News Interview September 25, 2008.

I had a country wide mortgage. It was sold to another mortgage company and I have never been even so much as late on my payments in the last four years.

Until we put politicians who break the law and dishonor their "service" to voters, this will happen many times again. Chris Dodd and Barney Frank are only two of the political culprits; putting them in prison would make a good start, but they still serve in Congress at this point and continue to make horrendous financial decisions with taxpayer money. Maybe someday their constituents will wake up and vote them out, but I don't count on miracles.